I was talking to colleagues after today’s Budget and I mentioned that I always seem to have an overriding emotion when I’m watching Chancellors deliver their speeches – not always the same emotion, far from it, but always a pervading emotion.
This time was no exception, although I’m struggling to find one word to describe it. It was a mixture of relief and incredulity – relieved that sensible economic management seems to be back to stay and incredulous that such polarised political views could be held within one political party.
Anyway, that’s enough about politics – a subject that should never be discussed in polite circles!
This was a Budget that clearly attempted to tackle the most significant issues affecting the UK economy right now, even briefly mentioning the need to settle industrial disputes and get people back to work, although obviously with no measures announced as to how that will be achieved other than focusing on cutting inflation.
What are those issues I hear you ask. Well in my opinion, they can all be summarised within two headings: the cost of living and productivity.
Reducing the cost of living will improve quality of life, whilst at the same time creating more disposable income that will be fed back into the economy, giving it a boost. Improved productivity will generate greater GDP per capita, leading to increased tax generation and a stronger economy, whilst boosting job satisfaction and quality of life. Very much a win, win situation.
How can we reduce the cost of living? Simple – get the rate of inflation back under control! How we go about that though is not so simple and is not entirely within our own hands. Putin’s war in Ukraine has created a global spike in energy prices, but as each day goes by this settles down a little bit more, so we are starting to see a position where the impact of those high energy prices is working its way out of the global economy. If the Government can plot a sensible path for the UK ship through the current turbulent economic waters, we should get to the end of the year in much better shape. The Chancellor’s message to the engine room today was very much ‘steady as she goes’ and there was of course the anticipated extension of the energy price cap for a further 3 months to the end of June to help us all through.
The vast majority of the Budget was about boosting productivity via the incentivisation of investment and innovation, together with encouraging and enabling people back into the workforce. This last point, in various guises, was the focus of large parts of the Chancellor’s speech, and so it should be! Various studies over the last eighteen months or so have identified that the UK has a particularly keenly felt skills shortage, with many industries struggling to fill all of their vacancies.
A few measures within the Budget that attempt to address this problem are as follows:
- Encouraging parents of young children back into work by a) making free childcare available to under 3s; b) changing regulations to improve access to childcare; and c) encouraging people into the child-minding industry with incentive payments.
- Introducing apprenticeships for over 50s to encourage them to learn new skills to rejoin the workforce in a different role. These have been given the catchy (!) moniker ‘Returnerships’.
- Abolishing the pensions lifetime allowance and increasing the pensions annual allowance to £60k to discourage highly skilled workers from leaving the workforce due to punitive tax charges (yes, this really has been happening, particularly within the NHS!).
- Funding allocated to help people with disabilities into the workforce.
Returning to the matter of incentivising innovation and investment, here we saw the following measures targeted at businesses, although I should point out that most of these only apply to companies:
- The introduction of a full expensing capital allowance for all plant & machinery expenditure in the next 3 years (possibly longer), together with a 50% first year allowance for special rate pool expenditure (largely property fixtures). This replaces the super-deduction and will only be of any relevance to large companies.
- An improved repayable credit for R&D expenditure of small, loss making R&D intensive companies, where at least 40% of the company’s expenditure is on R&D activity.
- A slightly improved cultural tax credits system is to be introduced for companies involved in TV, film, animation and video games development. Expected to be applicable from January 2024.
- The announcement of up to 12 new Investment Zones in specific areas of the country – applications invited focusing on the opportunities for innovation.
- Significant funding for businesses involved in projects to develop carbon capture usage and storage (CCUS), artificial intelligence and quantum computing.
The Chancellor’s overall theme was the 4 E’s of Employment, Education, Enterprise and Everywhere and it would be remiss of me not to highlight the one very important ‘E’ that he neglected – the Environment. There was some mention of the UK being a world leader in renewable energy, but very little in the way of combatting climate change other than the announced support for CCUS development. All I would say is there is very little point in having a strong economy if we don’t have a habitable planet!